Sweden, Finland step in to avert Lehman-like situation for power companies – EURACTIV.com
Finland and Sweden on Sunday (4 September) announced plans to offer billions of euros in liquidity guarantees to power companies in their countries after Russia’s Gazprom shut down the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.
Finland aims to offer 10 billion euros and Sweden plans to offer 250 billion Swedish kronor (23.4 billion euros) in liquidity guarantees.
“This has meant the ingredients for a kind of Lehman Brothers energy industry,” Finnish Economy Minister Mika Lintila said on Sunday.
When Lehman Brothers, the fourth largest US investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst parts of the US financial crisis.
“The government’s program is a last resort for financing for companies that would otherwise be threatened with insolvency,” Finnish Prime Minister Sanna Marin said at a press conference.
EU ministers to discuss options
EU energy ministers will on Friday (September 9) discuss options to curb rising energy prices, including gas price caps and emergency credits for energy market players.
Ministers will also consider offering urgent “pan-European credit support” for energy market participants facing very high margins, according to a document drawn up by the Czech Republic, which holds the EU’s rotating presidency.
“Margin requirements for futures contracts have increased in line with increased daily price fluctuations. This makes it almost impossible for an increasing number of companies to keep their hedging positions open, triggering their withdrawal from the futures markets,” the EU document says.
Utilities sell most of their power a few years in advance to guarantee a certain price, in an arrangement that requires them to deposit a “minimum margin” in an account as a safety net in case they fail before the power is produced and actually enters the market .
A margin call occurs if the funds in the account fall below the minimum margin requirement for a trade, forcing the firm to hedge it with more cash. Rising European electricity prices in recent months have triggered margin calls, putting liquidity pressure on market participants.
Any EU emergency policy would likely have to be proposed by the European Commission, which is currently drafting proposals.
EU energy ministers will discuss possible caps on margin limits that energy exchanges can request, and a temporary shutdown of European electricity derivatives markets, the document showed.
Prevents default settings
The state-controlled Finnish power company Fortum, which last week had urged Nordic regulators to take immediate action to avoid defaults even among smaller players, praised the proposals from Helsinki and Stockholm.
“We appreciate that the Finnish and Swedish governments are taking swift action to stabilize the Nordic derivatives market and support Nordic energy companies in times of crisis,” the company tweeted.
“It is crucial to keep companies operating. Our discussions with the Finnish government are ongoing,” it says.
The collateral requirement on Nasdaq clearing recently reached 180 billion Swedish kronor, up from around 25 billion in normal times due to the strong power prices, which have risen by around 1,100%, Sweden’s National Debt Office said on Saturday.
The government feared that the shutdown of Nord Stream 1 would lead to a further increase.
Finland’s Navy said that measures are needed at the EU level to stabilize the functioning of both the derivatives market and the energy market as a whole.
Nasdaq clearing is a Swedish company overseen by Swedish authorities, which is the main reason why Sweden was the first country to step in to tackle the potential crisis.
Sweden’s Finance Minister Mikael Damberg said on Sunday that the guarantees will apply until March next year in Sweden and also cover all Nordic and Baltic nations for the next two weeks only.
Without government guarantees, electricity producers could have ended up in “technical bankruptcy” on Monday, Damberg said.